nep-pub New Economics Papers
on Public Finance
Issue of 2009‒02‒07
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Snake-Oil Tax Cuts By Frankel, Jeffrey
  2. Financial Leverage and Corporate Taxation : Evidence from German Corporate Tax Return Data By Nadja Dwenger; Viktor Steiner
  3. Tax Progressivity and Recent Evolution of the Finnish Income Inequality By Marja Riihelä; Risto Sullström; Suoniemi; Ilpo
  4. The Basic Public Finance of Public-Private Partnerships By Engel, Eduardo; Fischer, Ronald; Galetovic, Alexander

  1. By: Frankel, Jeffrey (Harvard U)
    Abstract: Two theoretical propositions have played important roles in the thinking of U.S. presidents enacting large tax cuts since 1981. The first, often known as the Laffer Hypothesis, claims that reductions in marginal tax rates stimulate economic activity so much as to raise overall tax revenue. The second, often known as the Starve the Beast Hypothesis, claims that tax reductions, by depriving the government of revenue, lead to reductions in government spending. This paper reviews the conceptual arguments and available empirical evidence on these two propositions. The two contradict each other. Despite this, both run counter to most of the evidence, at least for the case of the United States.
    JEL: E62 H20 H30
    Date: 2008–10
  2. By: Nadja Dwenger; Viktor Steiner
    Keywords: financial leverage, financial structure, debt ratio, corporate income taxation, corporate tax return data
    JEL: G32 G38 H25 H32
    Date: 2009
  3. By: Marja Riihelä; Risto Sullström; Suoniemi; Ilpo
    Abstract: After the Economic Crisis in early 1990s the Finnish economy has recovered rapidly, and simultaneously a major period of equalization from the mid 1970s to the mid 1990s has been reversed, taking the levels of the Gini coefficient in a few years back to levels of inequality found 30 years ago. The paper examines how changes in Government policy, and in particular, in the incentives introduced by tax reforms have influenced income inequality. The paper introduces a decomposition of the Gini and concentration coefficients by population groups which are calculated for before- and after-tax incomes to consider evolution of income inequality and tax progressivity in Finland over the period 1990?2004. Decompositions of the Gini coefficient of after-tax income by income sources give little information on the effects of taxation. In contrast, popular measures of tax progressivity (Reynolds and Smolensky 1977) show a significant decrease. Our decomposition of the progressivity measure by income deciles focuses on changes in tax treatment of the income deciles in the ten year period after the mid 1990s. The changes in the decile shares of before-tax and after-tax income among those in the highest before-tax income deciles are the main factors that lie behind the recent change in tax progressivity, and play an important role in explaining the recent surge in inequality. These changes have been accompanied with a change in the composition of factor income. There has been an unprecedented increase in capital income which has mainly accrued to the population groups at the high end of the income distribution after the mid 1990s. The change is most clearly seen among those in the top income percentage. The 1993 Finnish tax reform introducing the Nordic dual income tax model, and creating strong incentives to shift labour income to capital income for those in the highest marginal tax brackets, is among the key policy decisions responsible for this trend. Interestingly enough, but consistent with the income shifting hypothesis, we find no increase in horizontal inequality in response to the introduction of the dual income tax.
    Keywords: Income inequality, Tax progressivity, Decomposition, Gini coefficient
    Date: 2008–12–17
  4. By: Engel, Eduardo (Yale U); Fischer, Ronald (U of Chile); Galetovic, Alexander (U of the Andes)
    Abstract: Public-private partnerships (PPPs) cannot be justified because they free public funds. When PPPs are justified on efficiency grounds, the contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap. However, observed revenue guarantees and revenue sharing arrangements differ from those suggested by the optimal contract. Also, this contract can be implemented via a competitive auction with realistic informational requirements. Finally, the allocation of risk under the optimal contract suggests that PPPs are closer to public provision than to privatization.
    JEL: H21
    Date: 2008–02

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